Business Travel: Is it a cost or an investment?

Why are so many travel managers encouraged only to control travel costs rather than use travel as a tool to achieve a result? Measuring travel’s ROI could be the first step!

Change rarely happens quickly or consistently. The GTMC contends that business travel should be seen as an investment, not a cost. After all, ask the travel management companies’ industry association, how can businesses grow without the face-to-face meetings that travel enables?

But most companies’ structures mean that travel continues to be perceived as a fixed cost. Most travel managers are located in procurement departments. Those procurement managers who are responsible for a company’s “indirect” purchases, ie those that are not directly related to the production of the goods and/or services which the organisation sells, in other words the stationery, insurance, coffee – all those items that are considered the “fixed cost” of doing business, tend also to be responsible for travel. And the invariable business objective of fixed costs is to keep them as low as possible.

VOLUME VS QUALITY OF CORPORATE TRAVEL

But many believe that the volume of travel – and the quality of that travel – that a company can do should not be managed as a fixed cost because it can vary. And vary it does, by company, company culture and business objectives and market conditions.

Juan Antonio Iglesias, Head of Account Management EMEA at FCM, says, “99% of companies locate travel buying in procurement but you’re not buying pencils or paper which will be consumed at different times by all. The impact of travelling will be individual.”

He believes that corporate culture and strategy are underestimated when people assess the value of travel and that the expected ROI from a trip would be defined in advance in an ideal world.

But life is far from ideal. Trip decisions must be made quickly these days because the fare is likely to rise and approval is not likely to be denied. As Iglesias explains, “More than 95% of trips will be approved. If you ask, how many requests to travel have been declined, the answer is very, very few. There may be lots of policies in place but the practice is very different.”

The corporate attitude towards cost is dictated not only by company culture but company strategy. “You need to know where the company is in its own life cycle. If the company is acquiring or about to be acquired, cost control is vital. However, if a company is going through an expansion phase, it has to be more relaxed about costs,” he continues.

“Within a company different people will look at travelling with different objectives in mind.”

This might be stating the obvious – after all, sales teams will be seeking different outcomes from those going to meet colleagues in another location. But the proliferation and wide availability of data mean that managers are now able to cost roughly every proposed trip once the dates and duration are known. After all the average cost for a flight between city pairs plus average accommodation rates and subsistence allowances are known.

A NEW APPROACH: FIXED COSTS FOR BUSINESS TRAVEL

A fixed cost approach may better suit budget setting and management. However, if the company strategy is expansion, the budget for travel for sales team members is likely to vary – and vary upwards.

“If you link traveller spending to strategy, you will be able to analyse return on investment much more easily,” says Iglesias.

The chart below from an Amadeus report on travel ROI illustrates the different elements of corporate strategy that travel managers should take into account. Some companies are beginning to consider these influences on travel spend but industry sector will have a heavy influence. Those companies that recharge travel expenses won’t be looking too hard at the relationship between travel spend and trip outcome. But there are companies that will view travel as an essential element in their growth strategies.

As Iglesias says, “Travel managers should know where the company is going. For travel management companies it’s very different working with someone who knows what’s happening with the company. Strategy has to be set at a high level and cascaded down.”

It’s very difficult to control lots of travellers and lots of trips. For travel managers, therefore, to connect the cost of travel to its outcome means working in partnership with various internal teams as well as the travel management company.

This is a very different proposition from using pre-trip approval as a tool to determine whether permission to travel should be granted. Unless their line manager is very poor and unaware, no one in a company is likely to be going on a trip unless they believe that the net effect will be greater value.

THE PROLIFERATION AND WIDE AVAILABILITY OF DATA

It would be costly to deny permission to travel at the booking stage. Travel managers need to understand whether they are looking at different departments in the same way or differently.

Members of the sales team will always be more able to quantify a benefit while for others it is more difficult. However, just because a trip is being made by someone who works in a non-revenuegenerating department such as, say, HR does not mean that it is without value. The difference is the ability to measure and demonstrate corporate benefit.

Some meetings will be more unproductive than others but if a client wants to see you, you have to go. Internal meetings may not be vital to the month’s bottom line but managers must think they’re important for a reason or they wouldn’t be planned.

As the chart reminds us, all companies have financial, HR and risk management strategies but some companies will get people together because their corporate cultures demand it.

On the other hand, in some companies travelling for internal meetings is not considered important and believed to be dispensable. Others try to manage this by having web meetings monthly, say, and an annual face-to-face team meeting. Company culture will dictate the travel tactics.

Iglesias says “Travel is so emotional because it involves your personal life. People look at it in a very different way. Start from top to bottom. Don’t start small or you will miss the bigger picture.”

It can get very complicated because every trip will have different cost – and benefit – variables to measure. But improvements in data collection allow us to apply formulae which can give a company the approximate costs of all planned trips. It should not be beyond companies to work out a scale of benefits, based on a company’s culture and strategy, as well.

Because the business sector, cycle and culture affect strategy so much, an ROI measure cannot be developed as an industry-wide standard but must be created on a company by company basis.